Interpublic Profit Dropped Over 70% in Second Quarter

Holding Company Cites Sharply Reduced Client Spending

NEW YORK (AdAge.com) -- Interpublic Group of Cos. is the latest advertising-agency holding company to report bleak second-quarter earnings due to clients that have sharply curtailed marketing budgets amidst the recession.

Interpublic today said profit sank more than 70% in the second quarter to $21 million, from $88 million in the same period last year. For the first six months of 2009, Interpublic posted a loss of $53 million, compared with a profit of $18 million in the first half of 2008. Revenue, meanwhile, tumbled nearly 20% over the year-prior period to $1.47 billion.

Tough all around
Two of Interpublic's holding-company peers, U.S.-based Omnicom Group and Paris-based Publicis Groupe, also reported difficult results last week; Omnicom reported a 24% drop-off in net income to $233 million, while global organic revenue was down 8.6% at Publicis.

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Signs of a recovery seem unlikely anytime soon, considering Interpublic cited June as its weakest month in the quarter.

"June was a bit of a surprise for us. ... We were surprised how much it was down," Interpublic Chief Financial Officer Frank Mergenthaler told analysts and investors on a conference call this morning.

The company, which is the parent of ad networks such as McCann Worldgroup and agencies such as DraftFCB, attributed the decline partly to continued pullbacks in project work, events marketing and lower fees from one of its largest accounts, embattled General Motors, which is in the midst of restructuring.

Rest of year will be 'challenging'
CEO Michael Roth stressed, though, that Interpublic was facing difficult comparisons, because it posted particularly strong results during the same period in 2008.

Michael Roth
"Our second-quarter results reflect the impact of the global economic downturn on our industry," said Mr. Roth, who noted that "clients continue to be cautious when it comes to committing resources in such an uncertain environment," and that the "balance of the year will continue to be challenging."

He said the company's response to the difficult market conditions have centered on controlling costs, including the reduction of salaries and office-related costs in the quarter. Since the fourth quarter of 2008, Interpublic has spent about $120 million on severance and has reduced its work force 9%.

Among the bright spots for Interpublic were the health-care sector, the Indian and Russian markets, and, more broadly, digital marketing. "There's no question our clients are spending more on digital. ... It's certainly an area we are going to invest in," said Mr. Roth.

Star performers
Mr. Roth took some time to highlight the successes of individual agency brands in the quarter. Mr. Roth described DraftFCB as a "top performer in the quarter," stating that chief marketing officers are increasingly showing interest in the agency's fully integrated model, now 2 years old. DraftFCB has won work from Starbucks, MillerCoors and Merck. Mr. Roth said Richmond, Va.-based Martin Agency and Boston-based Hill Holliday "stand out" in terms of their ability to seek out growth opportunities, and that the company's PR brands, Weber Shandwick and Golin Harris, are also weathering the storm well.

At Lowe Worldwide, the installation of Michael Wall as new global CEO "has been very well-received by clients and agency staff," Mr. Roth said, and McCann is focused on upgrading talent, with the recent addition of Robert LaPlae to oversee North America.

The Huge buy
Pushed by analyst Alexia Quadrani of J.P. Morgan, who noted that McCann has lost significant pieces of business from Microsoft, Mr. Roth said, "We think the relationship is not a risk."

Mr. Roth also provided a little color around Huge, the New York interactive shop Interpublic purchased a stake in last summer, noting the agency recently picked up new assignments from retailer Target and NBC Universal.

Huge was Interpublic's last major acquisition, and no new deals appear to be a priority for Interpublic this year. The company, which previously estimated spending as much as $100 million a year on acquisitions, said it has some smaller opportunities for deals in China and Latin America on its radar, but "nothing of significance" during the remainder of 2009.